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Madoff Trustee Adds Additional Defendants to Lawsuit


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7/2/2012
Barry Rosenzweig
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Trustees serve many roles in bankruptcy cases, namely distributing money to creditors and making sure that all assets are accounted for. In the case of Bernard Madoff, the infamous Ponzi scheme mastermind who stole billions from unsuspecting investors, the trustee is suing not only the bankruptcy estate but also Madoff’s relatives who were involved in his investment company, Bernard L. Madoff Investment Securities LLC, in order to seek restitution for the Ponzi scheme victims.

The trustee in the Madoff bankruptcy case is Irving Picard. Picard alleges that Madoff’s relatives working in compliance- and trading-related jobs at Madoff’s firm were aware of the Ponzi scheme but failed to report it. Alternatively, even if the relatives and spouses in question were not privy to the scheme, they were unjustly enriched by it. Unjust enrichment is a legal principal that is used to undo transactions where one party unfairly benefited from the transaction (e.g., benefited without providing adequate consideration for the benefit). In this case, Picard used unjust enrichment to show that Madoff’s relatives and their spouses should be added as defendants because they were unjustly enriched by the proceeds of the Ponzi scheme.

Madoff’s relatives recently added to the case are: Peter Madoff (brother of Bernard Madoff), who served as the investment company’s chief compliance officer; Andrew Madoff (son of Bernard Madoff) and the estate of Mark Madoff (Bernard Madoff’s deceased son), both of whom served as co-directors of trading; and Bernard Madoff’s niece Shana, who was employed at the firm as a compliance officer. The defendant with the most money at risk is Peter Madoff, from whom Picard is seeking to recover $90.4 million. Coming in a close second is Mark Madoff’s estate, from which Picard seeks $81.3 million. The other family claims are $73.8 million from Andrew Madoff and $15.3 million from Shana Madoff.

In addition to Madoff’s blood relatives, certain spouses and ex-spouses have been added to the case as defendants: Andrew Madoff’s wife Deborah Madoff; Mark Madoff's widow Stephanie Mack and ex-wife Susan Elkin. Picard is seeking $27.7 million from Deborah Madoff, $27.5 million from Stephanie Mack and $2.4 million from Susan Elkin.

In total, Picard is seeking to recover approximately $20 billion for Madoff’s investors. He has been awarded just over $9 billion so far but most of that money is still tied up in litigation. In fact, only $1.1 billion has been distributed to victims. Most of the deficit between the money awarded thus far and the total sought is due to the fact that Picard’s high-value claims against Madoff’s banks were dismissed. A compounding, albeit less significant, reason for the lack of restitution funds is the high cost of winding down Madoff’s firm – this cost is already more than a half billion dollars (“winding down” refers to the process of ending a business in a planned, organized and stepwise fashion so as to account for all of the business’s assets and liabilities, pay the business’s outstanding taxes, etc.).



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